KUALA LUMPUR (May 17): Economists have maintained their 2024 economic growth forecast for Malaysia at between 3.5% and 4.7% after Bank Negara Malaysia (BNM) announced first quarter gross domestic product (GDP) growth accelerated faster than expected.
The 4.2% year-on-year growth for the first quarter, announced by BNM on Friday, was higher than the median estimate of 3.9% growth in Bloomberg's survey of economists.
“Since the 1Q2024 GDP outturn was closely in line with our expectation with several growth catalysts still in place, we maintain our 2024 full-year real GDP growth forecast at 4.6%,” said UOB Global Economics & Markets Research in a note.
UOB said the “key growth catalysts” include an upturn in the global tech cycle, increasing tourism activities and continued implementation of budget measures such as infrastructure projects and cash aids.
However, it also highlighted several uncertainties for Malaysia in the near term, including the impact of subsidy rationalisation, escalation in geopolitical risks and a slower-than-expected global economic landscape.
Meanwhile, MIDF, which maintained its 2024 GDP growth forecast of 4.7%, expects Malaysia’s growth momentum to continue in the coming quarters on growing domestic spending activities driven by positive labour market and income growth, as well as increased tourist arrivals.
On external demand, MIDF believes that Malaysia will benefit from improvements in global production and international trade, especially growing demand from major trading partners such as China and the US. It expects to see the improvement in the electrical and electronics trade.
“We are cautious that several risks could constrain this year’s growth outlook, such as escalation in geopolitical and trade tensions, weaker growth in China and the US, and significant slowdown in final demand from the major markets (in view of the high borrowing costs). On the domestic front, policy changes may result in higher inflation, which could adversely affect consumer sentiment and their spending plans," it added.
Capital Economics, on the other hand, expects Malaysia’s GDP to grow by 3.5% this year, which the research house noted is lower than the consensus forecast of 4.2%.
Contrary to other research firms, Capital Economics thinks consumer spending, which accounts for 60% of GDP, will likely weaken.
“Inflation in Malaysia is likely to rise sharply in the second half of the year due to the planned food and fuel subsidy cuts, which will weigh heavily on real household incomes. However, there remains significant uncertainty around the timing and scale of these subsidy cuts,” it said.
The uncertainty had prompted BNM to project inflation to average between 2% and 3.5% this year. Capital Economics, on its part, expects Malaysia's headline inflation to pick up to 3.2% later this year from 1.8% year-on-year in March.
“The softening labour market will also curtail private consumption. The ongoing decline in job vacancies suggests that the deceleration in employment and nominal wage growth has further to run," it added.
Capital Economics also expects the recovery in goods exports to slow in the near term due to weaker demand growth from the US, while services exports are likely to stagnate since the recovery in the tourism sector has matured, it said.
OPR to stay unchanged at 3%
Economists also foresee that the central bank will keep the overnight policy rate (OPR) unchanged throughout this year amid positive growth prospects. BNM has kept the OPR unchanged for one year now since it was last raised in May 2023 by 25 basis points.
"Today’s data suggests that BNM will continue to maintain its policy rate at 3% through 2024. Growth dynamics do not indicate a pressing need for lower interest rates. Lower interest rates may also be to the detriment of the ringgit, at least until the deficit in the financial account meaningfully recedes," Australia & New Zealand Banking Group's (ANZ) research team said in a note.
UOB also expects BNM to keep the 3% policy rate to balance "risks between domestic growth and inflation".
"Furthermore, the Monetary Policy Committee (MPC) did not signal any potential changes to its monetary policy settings during last week's meeting," it added.
The MPC has three more rounds of meetings this year to decide on the OPR, with the next meeting scheduled to be held on July 10 and 11.